Readers hoping to buy Kuala Lumpur Kepong Berhad (KLSE:KLK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Kuala Lumpur Kepong Berhad's shares on or after the 17th of February will not receive the dividend, which will be paid on the 28th of February.

The company's next dividend payment will be RM0.80 per share. Last year, in total, the company distributed RM1.00 to shareholders. Based on the last year's worth of payments, Kuala Lumpur Kepong Berhad stock has a trailing yield of around 4.6% on the current share price of MYR21.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Kuala Lumpur Kepong Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Kuala Lumpur Kepong Berhad

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Kuala Lumpur Kepong Berhad's payout ratio is modest, at just 50% of profit. A useful secondary check can be to evaluate whether Kuala Lumpur Kepong Berhad generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Kuala Lumpur Kepong Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Kuala Lumpur Kepong Berhad's earnings per share have risen 16% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kuala Lumpur Kepong Berhad has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Kuala Lumpur Kepong Berhad is keeping back more of its profits to grow the business.

The Bottom Line

Is Kuala Lumpur Kepong Berhad an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Kuala Lumpur Kepong Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Kuala Lumpur Kepong Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Kuala Lumpur Kepong Berhad (1 shouldn't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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